Despite low oil prices, U.S. shale boom is proving resilient, the Organization of of the Petroleum Exporting Countries (OPEC) said in its biggest report this year, which suggests the global oil glut could linger for two more years.
Every five years OPEC publishes long-term strategy reports. In 2010 its report did not mention shale oil as a serious rival, highlighting the dramatic change the oil markets have undergone in the past few years.
The current report said that crude supply from
rival non-OPEC producers would grow at least until 2017.
Poor global demand for oil means the call on OPEC's crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, leaving the cartel with two options - cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer.
Since June
2014, oil prices have suffered significant losses, reaching
levels even lower than the crisis experienced in 2008, yet non-OPEC
supply is still showing some growth, the report says.
Since June 2014, Brent crude has collapsed from $115 a barrel because of ample supplies amid a U.S. shale oil boom and a
decision by OPEC last November not to cut output. The cartel, however, chose to increase supply in a bid to win back market share and slow higher-cost competing producers.
Meanwhile, shale oil production appeared to be more resilient than the group had previously thought.
"Generally speaking, for non-OPEC fields already in production, even a severe low price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs," the OPEC report said.
"For future non-OPEC production, only expectations of an oil price environment in the long-term below the marginal cost of production may deter substantial non-OPEC developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations."
OPEC earned a reputation of a swing producer over the past decades, due to its ability to cut and raise production. But the current report suggested it is
shale oil that is now playing this role.
"Recent structural
changes in the growth patterns of non-OPEC supply as a result of the
substantial contributions from North American shale plays might prove to
be a turning point (e.g. short lead times of the projects and higher
short-term price elasticity)."
New and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6 percent per year and contribute 45 percent of the growth in energy production to 2035.
By 2019, OPEC crude supply at 28.7 million bpd
will still be lower than in 2014, the report said, and demand for its
oil will start rising only after 2018-2019, reaching almost 40 million
bpd by 2040.
